well, a typical wall is a bit less than 4" deep due to the width of a standard 2X4 being 3 1/2 inches. Yes, that does limit the amount of insulation one can install. Depending on how much money you want/can spend, you might look into spray foam. The closed cell variety has about the best R rating of any common insulation. It also works to seal the wall against air infiltration.
diy foam: search the net. Tigerfoam is but one. Not recommending them but they always turn up on a Google search when I look for such an installation system.
http://www.google.com/search?rlz=1C1...oam+insulation